Reference no: EM132285078
(1) Given the following information calculate the relevant annual Net Cash Flow After Tax [NCFAT], needed to calculate NPV.
Forecast Annual Income $
Cash Revenue 360,000
Less
Cash Operating Expenses 160,000
Admin cash flow expenditure 60,000
Depreciation 36,000
Interest 24,000
Net profit before tax
Tax @ 30% 24,000
Net profit after tax 56,000
(2) A company is considering the purchase of equipment costing $84000 which will permit it to reduce its existing labour cost by $21000 each year for twelve years. The company estimates that it will have to spend $2000 every two years overhauling the equipment. The equiment may be depreciated using straight line depreciation over 12 years for tax purposes. The company tax rate is 30 cents in the dollar and the after corporate tax cost of capital is 10% per annum.
Assume:
- Salvage value of zero.
- The outlay of $84000 occurs at time zero.
- All other cash flows including, tax payments and credits are made at the end of the year.
- No overhaul is required in year 12.
What is the NPV to the nearest dollar? Be careful not to round until the last calculation.
(3) A two-year project has been evaluated and has an NPV on an after tax basis of -$2000. On reviewing the analysis the Finance Manager found that depreciation had been omitted from the tax analysis. The allowable depreciation for tax purposes is $5000 for each year. Using a tax rate of 30% and and a discount rate after tax of 12% pa, determine the correct NPV for the project.
(4) Use the following information to estimate the taxable income for year 5.
Year Sales in units
1 10,000
2 20,000
3 40,000
4 45,000
5 41,000
6 25,000
Unit price for sales in years 1 to 3: $50 and for years 4 to 6: $45
Variable Cost (VC) : $25 per unit
Fixed Cost (FC) : $50 000 per year
Initial Investment: $600 000
Salvage: $50 000 at the end of year 6
tax rate: 34%
cost of capital 15%
depreciation method: prime cost to zero
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